
Demystifying the All New 2020 Tax Year IRS Form 5471 Schedule P Tracking “Previously Taxed Earnings and Profits of U.S. Shareholder of Certain Foreign Corporations”
By Anthony Diosdi IntroductionSchedule P of Form 5471 is used to report PTEP of the U.S. shareholder of a controlled foreign currency (“CFC”) in the CFC’s functional currency. The term PTEP refers to earnings and profits (“E&P”) of a foreign corporation. Schedule P like Schedule J and Schedule E has given tax practitioners fits the last two tax seasons. Much of this confusion is the result of the Section 959 ordering and basketing rules. Things are not likely to improve next tax season because international tax practitioners will also need to understand the new extraordinary disposition and extraordinary reduction rules to properly complete Schedule P. On August 24, 2020, the IRS issued a draft for Schedule P (without any instructions) for the 2020 tax year. Although the 2020 Schedule P…